Estate received more time for QTIP and reverse QTIP elections

Plain-English summary

An estate timely filed Form 706, but its accountant did not advise the executor to make QTIP and reverse QTIP elections for a marital trust or include Schedule R. The trust required income distributions to the surviving spouse and was intended to qualify for the marital deduction. The IRS concluded that the regulatory relief requirements were met and granted 120 days to make both elections on a supplemental Form 706. The decedent's available generation-skipping transfer tax exemption would then be automatically allocated under Section 2632(e).

Ruling snapshot

• Question: Could the estate receive an extension to make QTIP and reverse QTIP elections for the GST-exempt marital trust?
• Outcome: approved
• Key authorities: IRC §§ 2056(b)(7), 2632(e), 2652(a)(3); Treas. Reg. §§ 20.2056(b)-7, 26.2632-1, 26.2652-2, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202424016                                              Third Party Communication: None
Release Date: 6/14/2024                                        Date of Communication: Not Applicable
Index Number: 9100.00-00, 2056.07-00,
              2652.01-02                                       Person To Contact:
                                                               ---------------, ID No. -----------------
---------------------------------------                        Telephone Number:
------------------------------------------------------------   --------------------
--------------------                                           Refer Reply To:
---------------------------                                    CC:PSI:04
------------------------                                       PLR-120559-23
--------------------------------                               Date:
                                                               March 18, 2024

         RE: ----------------------------------------------
---------------------------------------------


LEGEND

Decedent         =         -----------------------------------------------------
Spouse           =         ----------------------------------------------------
Trust            =         --------------------------------------------------------------
Date 1           =         -----------------
Date 2           =         ------------------
Date 3           =         ---------------------
Date 4           =         -------------------
Accountant       =         --------------------------------
CPA Firm         =         --------------------------------------




Dear ------------------:

This letter responds to a letter dated October 6, 2023, and supplemental
correspondence, submitted on behalf of Decedent’s estate, requesting an extension of
time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make
a qualified terminable interest property (QTIP) election under § 2056(b)(7) of the
Internal Revenue Code (Code) and a “reverse” QTIP election under § 2652(a)(3).

The facts and representations submitted are summarized as follows:

On Date 1, Decedent and Spouse (Settlors) executed a revocable trust, Trust. Trust
was amended and restated on Date 2. Decedent died testate on Date 3, survived by
Spouse.

PLR-120559-23                                   2

Article III of Trust provides, in relevant part, that upon the death of the first settlor to die
(the “deceased spouse”) the surviving settlor’s (the “surviving spouse”) nonmarital
property and a half-share of the marital property is to be set aside and held in further
trust known as Survivor’s Trust. The balance of the Trust assets (the “net estate”) is to
be segregated and designated as the Marital Share and Family Share.

Pursuant to Paragraph (D) of Article III, the Marital Share shall be an amount equal to
the smallest marital deduction allowable to the deceased spouse’s estate for federal
estate tax purposes that is sufficient to eliminate or minimize federal estate tax on the
deceased spouse’s estate, after taking into account: (i) the credit against the federal
estate tax under § 2010 of the Code, and (ii) all property included in the deceased
spouse’s gross estate for federal estate tax purposes that passes or has passed to the
surviving spouse, the Survivor’s Trust, the Marital Trust or the Marital Share, in such
manner as to qualify for the federal estate tax marital deduction.

Pursuant to Paragraph (D)(1)(c) of Article III, the Marital Share shall be divided into two
separate parts, to be known as Part A and Part B, as follows:

      (i)     Part A, which shall be allocated to the Marital Trust and held, administered
              and distributed pursuant to Article V, shall consist of the largest fractional
              share of the Marital Share, if any, that can qualify for deceased spouse’s
              generation-skipping transfer tax exemption under § 2631, in order to
              produce an inclusion ratio of zero for the Marital Trust under § 2642, after
              taking into account any exemption that is first allocated to the assets of the
              Family Share and held as Family Trust A, and to any direct skips or other
              generation-skipping transfers occurring at the time of deceased spouse’s
              death as to which deceased spouse is the transferor. Deceased spouse’s
              executor is directed to allocate enough of deceased spouse’s GST
              exemption to the assets of the Marital Trust to produce an inclusion ratio
              of zero for the Marital Trust. (GST Exempt Marital Trust)
      (ii)    The balance of the Marital Share, if any, remaining after allocation to
              Part A shall be segregated as Part B, and distributed to the Survivor’s
              Trust, to be held, administered and distributed pursuant to Article IV,
              unless otherwise directed by surviving spouse.

Pursuant to Paragraph (D)(1)(e) of Article Ill, the balance of the net trust estate
remaining after the allocation to the Marital Share shall be designated the Family Share
and divided into two separate trusts, known as Family Trust A and Family Trust B.

Article V governs the administration of the Marital Trust. Paragraph (A) provides that
during surviving spouse’s lifetime, the trustee shall distribute to surviving spouse all of
the net income of such trust at least quarter-annually. If at any time any nonproductive
assets are held in Marital Trust, surviving spouse shall have full right to direct the
trustee to convert the same to productive assets. Paragraph (B) authorizes the trustee
to distribute or apply to or for the benefit of surviving spouse as much of the principal as

PLR-120559-23                                  3

the trustee determines to be advisable for surviving spouse’s health, education, support
in reasonable comfort or maintenance. Paragraph (C) provides, in relevant part, that
Marital Trust is to terminate at the death of the surviving spouse. With respect to any
portion of the trust estate over which the surviving spouse did not exercise her
testamentary limited power of appointment, the property will be distributed to Family
Trust A.

Article XVII provides that it is Settlors’ intent that all provisions relating to the Marital
Trust created shall comply with and be administered in accordance with all marital
deduction requirements of the Internal Revenue Code so that if an appropriate election
is made under § 2056(b)(7), the deceased spouse’s estate will be entitled to the marital
deduction for federal estate tax purposes.

Spouse, while serving as executor of Decedent’s estate, retained Accountant, a certified
public accountant, of CPA Firm, to prepare Decedent’s Form 706, United States Estate
(and Generation-Skipping Transfer) Tax Return. On Date 4, the Form 706 was timely
filed (on extension) on behalf of the estate. The Form 706 reported Decedent’s assets
as “all other property” on Schedule M and reported no “QTIP property.” Accountant also
failed to include Schedule R with the return. Thus, neither the QTIP election nor a
reverse QTIP election was made with respect to the GST Exempt Marital Trust. CPA
did not advise Spouse, as the executor of Decedent’s estate, to make the QTIP and
reverse QTIP elections, or apply Decedent’s GST exemption to the GST Exempt Marital
Trust. It is represented that Decedent has sufficient GST exemption to allocate to the
GST Exempt Marital Trust.

You have requested the following rulings:

1. An extension of time under §§ 301.9100-1 and 301.9100-3 to make a QTIP election
under § 2056(b)(7) with respect to the GST Exempt Marital Trust.

2. An extension of time under §§ 301.9100-1 and 301.9100-3 to make a “reverse” QTIP
election under § 2652(a)(3) with respect to the GST Exempt Marital Trust.

LAW AND ANALYSIS

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent
who is a citizen or resident of the United States.

Section 2044 provides, in part, that the value of the gross estate shall include the value
of any property for which a deduction was allowed with respect to the transfer of such
property to the decedent under § 2056(b)(7) in which the decedent had a qualifying
income interest for life.

Section 2056(a) provides that, for purposes of the tax imposed by § 2001, the value of
the taxable estate shall, except as limited by § 2056(b), be determined by deducting

PLR-120559-23                                   4

from the value of the gross estate an amount equal to the value of any interest in
property which passes or has passed from the decedent to the surviving spouse, but
only to the extent that such interest is included in determining the value of the gross
estate.

Section 2056(b)(7)(A) provides that, in the case of qualified terminable interest property,
for purposes of § 2056(a), such property shall be treated as passing to the surviving
spouse, and for purposes of § 2056(b)(1)(A), no part of such property shall be treated
as passing to any person other than the surviving spouse.

Section 2056(b)(7)(B)(i) defines the term “qualified terminable interest property” as
property: (I) which passes from the decedent; (II) in which the surviving spouse has a
qualifying income interest for life as defined in § 2056(b)(7)(B)(ii); and (III) to which an
election under § 2056(b)(7) applies.

Section 2056(b)(7)(B)(ii) provides that the surviving spouse has a qualifying income
interest for life if: (I) the surviving spouse is entitled to all the income from the property,
payable annually or at more frequent intervals, or has a usufruct interest for life in the
property; and (II) no person has a power to appoint any part of the property to any
person other than the surviving spouse.

Section 2056(b)(7)(B)(v) provides that an election under § 2056(b)(7) with respect to
any property shall be made by the executor on the return of tax imposed by § 2001.
Such an election, once made, shall be irrevocable.

Section 20.2056(b)-7(b)(4)(i) of the Estate Tax Regulations provides that, in general, the
election referred to in § 2056(b)(7)(B)(i)(III) and (v) is made on the return of tax imposed
by § 2001 (or § 2101). For purposes of this paragraph, the term “return of tax imposed
by § 2001” means the last estate tax return filed by the executor on or before the due
date of the return, including extensions or, if a timely return is not filed, the first estate
tax return filed by the executor after the due date.

Section 2601 imposes a tax on every generation-skipping transfer. Section 2611(a)
provides that the term “generation-skipping transfer” means: (1) a taxable distribution;
(2) a taxable termination; and (3) a direct skip.

Section 2602 provides that the amount of the GST tax is determined by multiplying the
taxable amount by the applicable rate. Section 2641(a) provides that the term
“applicable rate” means, with respect to any GST transfer, the product of the maximum
federal estate tax rate and the inclusion ratio with respect to the transfer.

Section 2631(a) provides that, for purposes of determining the inclusion ratio, every
individual shall be allowed a GST exemption amount which may be allocated by such
individual (or his executor) to any property with respect to which the individual is the

PLR-120559-23                                 5

transferor. Section 2631(b) provides that any allocation under § 2631(a), once made,
shall be irrevocable.

Section 2632(a) provides that any allocation by an individual of his or her GST
exemption under § 2631(a) may be made at any time on or before the date prescribed
for filing the estate tax return for such individual’s estate (determined with regard to
extensions), regardless of whether such a return is required to be filed.

Section 2632(e)(1) provides that, in general, any portion of an individual’s GST
exemption which has not been allocated within the time prescribed by § 2632(a) shall
be deemed to be allocated as follows: (A) first, to property which is the subject of a
direct skip occurring at such individual's death, and (B) second, to trusts with respect to
which such individual is the transferor and from which a taxable distribution or a taxable
termination might occur at or after such individual's death.

Section 26.2632-1(d)(2) of the Generation-Skipping Transfer Tax Regulations provides
that a decedent’s unused GST exemption is automatically allocated on the due date for
filing the Form 706, or Form 706NA, to the extent not otherwise allocated by the
decedent’s executor on or before that date. Unused GST exemption is allocated pro
rata (subject to the rules of § 26.2642-2(b)), on the basis of the value of the property as
finally determined for purposes of chapter 11 (chapter 11 value), first to direct skips
treated as occurring at the transferor's death. The balance, if any, of unused GST
exemption is allocated pro rata (subject to the rules of § 26.2642-2(b)) on the basis of
the chapter 11 value of the nonexempt portion of the trust property to trusts with respect
to which a taxable termination may occur or from which a taxable distribution may be
made. No automatic allocation of GST exemption is made to a trust that will have a
new transferor with respect to the entire trust prior to the occurrence of any GST with
respect to the trust. The automatic allocation is irrevocable.

Section 2642(a)(1) provides that, generally, the inclusion ratio with respect to any
property transferred in a GST is the excess of one over the applicable fraction
determined for the trust. Section 2642(a)(2) provides that, in general, the applicable
fraction is a fraction the numerator of which is the amount of the GST exemption
allocated to the trust and the denominator of which is the value of the property
transferred to the trust, reduced by the sum of any federal estate tax or state death tax
actually recovered from the trust attributable to such property, and any charitable
deduction allowed under § 2055 or 2522 with respect to such property.

Section 2652(a)(1) provides that for purposes of chapter 13, the term “transferor”
means: (A) in the case of any property subject to the tax imposed by chapter 11, the
decedent; and (B) in the case of any property subject to the tax imposed by chapter 12,
the donor. An individual shall be treated as transferring any property with respect to
which such individual is the transferor.

PLR-120559-23                                 6

Section 2652(a)(3) provides, in pertinent part, that in the case of any trust with respect
to which a deduction is allowed to the decedent under § 2056(b)(7), the estate of the
decedent may elect to treat all of the property in such trust for GST tax purposes as if
the election to be treated as qualified terminable interest property had not been made
(“reverse” QTIP election).

Section 26.2652-2(a) provides, in part, that a “reverse” QTIP election is not effective
unless it is made with respect to all of the property in the trust to which the QTIP
election applies. Section 26.2652-2(b) provides that an election under § 2652(a)(3) is
made on the return on which the QTIP election is made.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code except subtitles E, G, H, and I.

Section 301.9100-3 provides the standards used to determine whether to grant an
extension of time to make an election whose date is prescribed by a regulation (and not
expressly provided by statute).

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides the
evidence to establish to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the government.

Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election.

Based on the facts submitted and the representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Therefore, the executor of
Decedent’s estate is granted an extension of time of 120 days from the date of this letter
to make a QTIP election with respect to GST Exempt Marital Trust and make a reverse
QTIP election with respect to the GST Exempt Marital Trust. Decedent’s available GST
exemption will be automatically allocated under § 2632(e).

These elections should be made on a supplemental Form 706 filed with the Internal
Revenue Service at the following address: Department of the Treasury, Internal
Revenue Service, Stop 824G, 7940 Kentucky Drive, Florence, KY 41042-2915. A copy
of this letter should be attached to the supplemental Form 706.

PLR-120559-23                                   7

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.


                                         Sincerely,

                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)

                                            Melissa C. Liquerman
                                   By:
                                         Melissa C. Liquerman
                                         Senior Counsel, Branch 4
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)




Enclosure
     Copy for § 6110 purposes




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